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Wednesday, October 21, 2015

Fantasy Sports Now Considered Gambling(chance, consideration and prize) And Subject To Gambling Regulation

Government regulators in the US have traditionally considered "gambling" as an activity that includes chance, consideration and prize. Nevada has decided to broaden this definition to include "skill" as a gambling activity in addition to "chance" thus placing fantasy sports into a regulatory regime. It was inevitable that the fantasy sports craze would attract the attention of US state governments interested in garnering revenue from this form of online sports wagering. In some ways the online and TV ads that have been bombarding potential US consumers have brought to the attention of US state regulators that there is tax revenue to be had in forcing online fantasy sports providers to become "licensed" in their state. The initial objective for Nevada is to generate licensing revenue from this form of online gaming. However, the ultimate goal for gaming regulators should be to protect its citizens from abusive and predatory practices exercised by online gambling operators. This beg the question as to what comes next after the licensing fee is established.

It is unclear at this point if other skill games that are not sports related are exempt from the licensing fee and regulation. For instance chess, checkers and other popular games are not part of the proposed legislation. Further complicating the US position on regulated gaming or gambling is the fact that the federal government still allows wagering on skill games. Also, no other state in the US has taken the position that Nevada has. It will be interesting to see what New Jersey and Delaware do. They are two of the other US states that regulate online gambling for their populations.

Further complicating matters is the fact that skill gaming for cash has been regulated and allowed in 28 other states. So will they regulate fantasy sports wagering as a skill game and not a separate category of gaming? Can a Nevada player be included in wagering that involves residence from other states?

The brazen launch of skill gaming for cash payouts by fantasy sports operators has no doubt got other skill game operators to rethink their business models and the amount of wagering that they will include in their games. The legal definition of what skill gaming is or is not is rather contrived as far as common law is concerned. Laws usually are defined in terms of a precedent that is set requiring a law to address it. In the case of US gaming and online gambling the emergence of online fantasy sports for cash payout is causing many to rethink online gambling entirely. Traditionally, gambling is defined as chance, consideration and prize. With prize being something "tangible" and having exchangeable value. Tangible value in this case means that "real" currency can be wagered and redeemed.

It is also going to be interesting how this is all going to work where Nevada players will be competing with other players that are not in regulated states. The federal US Wire Act created in 1961 to curtail "electronic" gambling is also up for grabs and is being challenged by online interstate "skill" gaming. Look forward to a review by the justice department to determine where fantasy sports lines up in relation to that legislation.

We should also consider the reaction in Europe and Australia to fantasy sports where online sports wagering is regulated and legal. Freemium and recreational fantasy sports is not currently a big deal in Europe or Australia. However, it would seem plausible that with the addition of "real" wagering in this realm that fantasy sports could become popular in both of these regions.

Essentially, investors, players and businesses thinking about getting into fantasy sports wagering should be prepared for some changes to the fantasy sports business model. We may in fact be seeing the hiatus of this gaming category.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin, has developed, launched and operated Internet gambling sites in Europe. Kevin and Gameinlane develop "social and real money" casino games for third parties. Kevin has worked for and with US land based casino operators helping them evaluate social casino and iGaming platforms for the purpose of joint ventures and acquisitions. Kevin can be reached at kflood@gameinlane.com.